LOW-INCOME WORKING FAMILIES BRIEF
Reforming the Child Tax Credit
How Different Proposals Change Who Benefits
Elaine Maag
December 2015
The child tax credit (CTC) provides a credit of up to $1,000 per child under age 17. In 2016, the UrbanBrookings Tax Policy Center (TPC) estimates the credit—including the refundable portion1—will deliver
$57 billion to 35 million families, nearly 70 percent of all families with children. Least likely to receive
the credit are families in the highest 20 percent of the income distribution, because the credit phases
out with income.2
The CTC has received broad, bipartisan support from its inception. It was part of Newt Gingrich’s
Contract with America and was enacted in 1997 under President Bill Clinton. Legislators and
candidates from both major parties have recently proposed expanding the credit, albeit in very different
ways. How the credit evolves in the coming years could dramatically affect who benefits—possibly
turning the credit from a key source of support for low-income families to one that primarily aids
higher-income families.
Key to today’s benefits for low-income families is the refundable portion of the credit, limited to 15
percent of earnings above a defined threshold. That threshold was initially set at $10,000 (indexed for
inflation after 2001). Temporary legislation has reduced it to $3,000 (unindexed) until 2018, when
permanent law will boost the threshold to almost $15,000. Primarily as a result of that increase, the
proportion of families in the lowest income quintile benefiting from the CTC will drop by more than half,
from about 80 percent in 2016 to just 38 percent in 2018. Average benefits in 2018 for recipient
families in the lowest income quintile will be almost $700 lower than they would be if Congress
extended the $3,000 threshold. No other group will be affected as much by a failure to extend the
$3,000 refundability threshold.
Members of Congress have offered various proposals to modify the CTC or otherwise expand tax
benefits for families.
In August 2015, Senator Tom Carper (D-Delaware) introduced legislation to make the $3,000
refundability threshold permanent instead of allowing it to expire after 2017.

In 2014, Senators Mike Lee (R-Utah) and Marco Rubio (R-Florida) proposed broad tax reform,
including a new $2,500-per-child credit (in addition to the existing CTC). This credit would be
refundable to the extent that income and payroll taxes exceeded a family’s earned income tax
credit (EITC) and would not phase out at higher incomes. This change would benefit higherincome families with children that currently receive little or no CTC.

Representative Lynn Jenkins (R-Kansas) proposed indexing most CTC parameters and reducing
marriage penalties by setting the phaseout threshold for married couples at twice that for
single parents. Indexing the credit would benefit families in the upper-middle income range, and
increasing the phaseout for married couples would mostly boost benefits for families in the top
two-fifths of the income distribution. Consequently, that group would get most of the
additional benefits from Jenkins’s plan.

This analysis compares a variety of potential reforms against what will happen under current law in
2018, when the CTC is scheduled to drop dramatically for low-income families. The focus is on
identifying which income groups would benefit most from the various reforms.
Reducing or maintaining today’s refundability threshold would allow the CTC to continue to benefit
low-income families. Other CTC proposals would allow benefits to decline for low-income workers with
children, relative to today’s CTC levels. Proposals that would increase the maximum credit, index the
credit, or expand the eligible population would benefit middle-income families the most. Providing
additional CTC benefits that don’t phase out would help high-income families most.
Subsidizing Children in the Tax Code
Three rationales have guided income tax subsidies for children:
Income tax liabilities should be adjusted for ability to pay; thus, all else equal, a larger family
should pay less tax than a smaller family.


Subsidizing children is an investment in everyone’s future.

Encouraging parents to work will ultimately benefit their children.
The child tax credit is consistent with all three rationales and is the second-largest tax subsidy
focused on children (behind the EITC). The CTC helps working families through a wide swath of the
income distribution—only the poorest families and those with the highest incomes cannot benefit
(Maag 2013).
2
REFORMING THE CHILD TAX CREDIT
How the Current CTC Works
Taxpayers can claim a CTC of up to $1,000 for each child under age 17. The credit is reduced by 5
percent of adjusted gross income over $75,000 for single parents and over $110,000 for married
couples. Neither the credit amount nor the phaseout point is indexed for inflation. If the credit exceeds
taxes owed, taxpayers may receive some or all of the balance as a refund, known technically as the
additional child tax credit (ACTC) or refundable CTC. The ACTC is limited to 15 percent of earnings
above a threshold that is indexed for inflation. The threshold was temporarily reduced to $3,000 in
2009 but will revert up to the permanent level of almost $15,000 in 2018. The lower threshold allows
even very low income families to benefit from the CTC and increases benefits for many low-income
families who would have been unable to claim their full credit if the higher refundability threshold were
in effect (figure 1).
FIGURE 1
Child Tax Credit for One Child
Family Earnings
Credit amount
$1,200
Phase-in 2015–17
$1,000
Married phaseout,
all years
Phase-in after 2017
$800
Single phaseout,
all years
$600
$400
$200
$0
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
Earnings
Source: Urban-Brookings Tax Policy Center.
Note: Assumes all income comes from earnings and that the child is under 17 and meets all tests to be a child tax credit qualifying
child.
When the refundability threshold jumps to almost $15,000, total benefits from the credit will shrink
by roughly $10 billion annually. The higher threshold will deny benefits entirely to families with the
lowest incomes. Average credits for families in the bottom fifth of the income distribution will drop
REFORMING THE CHILD TAX CREDIT
3
from $1,050 (if the $3,000 refundability threshold were still in place) to just $370 in 2018 (figure 2).
Other income groups will be less affected by the threshold change.
If the temporary refundability threshold expires in 2018 as scheduled, fewer low-income families
will get CTC benefits and a smaller share of total CTC benefits will go to families with children in the
bottom income class. TPC estimates that roughly four-fifths of families with children in the lowest
income quintile will benefit from the CTC in 2016, but that number will drop to just two-fifths in 2018.
Other income groups will experience smaller declines (figure 3). The credit will remain near universal
for families with children in the middle three income quintiles; less than 10 percent of families in the
highest income quintile will receive the CTC in both 2016 and 2018. TPC estimates that 11.5 million
children will live in families with income too low to receive the full credit in 2016. That number will jump
to 20 million in 2018 if the refundability threshold increases as scheduled.
FIGURE 2
Average Child Tax Credit for Families with Children in 2018: Current Law versus Extended $3,000
Refundability Threshold
Dollars
Current law
1,501
Extended $3,000 refundability threshold
1,484 1,502
1,299
1,048
1,016
905 906
829
369
24
Lowest income
quintile
Second income
quintile
Middle income
quintile
Fourth income
quintile
24
Highest income
quintile
Average, all
quintiles
Source: Urban-Brookings Tax Policy Center, “Microsimulation Model, version 0515-1,”
http://taxpolicycenter.org/numbers/displayatab.cfm?template=simulation&SimID=509.
Notes: Until 2018, the child tax credit becomes refundable at $3,000. It will increase to $14,600 (estimated) as the American
Taxpayer Relief Act expires. This figure compares average benefits for qualifying families under the $3,000 threshold and 2018
law.
4
REFORMING THE CHILD TAX CREDIT
FIGURE 3
Share of Families with CTC and Distribution of CTC Benefits, 2016 and 2018
Current Law, by Income Quintile
Percentage of families with children receiving CTC
Percentage of total benefits
Percentage
100
90
80
70
60
50
40
30
20
10
0
2016
2018
Lowest income
quintile
2016
2018
Second income
quintile
2016
2018
Middle income
quintile
2016
2018
Fourth income
quintile
2016
2018
Highest income
quintile
Source: Urban-Brookings Tax Policy Center, “Microsimulation Model, version 0515-1.”
Notes: CTC = child tax credit. Under 2016 law, the point at which the child tax credit becomes refundable is $3,000. In 2018 law,
that threshold increases to $14,600 (estimated) as the American Taxpayer Relief Act expires.
About 20 percent of all CTC benefits will go to the lowest income group in 2016, but that share will
plummet to just 9 percent in 2018. Less than 1 percent of all CTC benefits will go to families with
children with incomes in the highest income quintile in both years, because their incomes are typically
beyond the point at which the CTC phases out. TPC estimates that 15.3 million children will receive no
CTC or a reduced credit in 2016 because their family earnings exceed the CTC phaseout threshold.
That number will increase to 17.0 million in 2018 because the threshold is not indexed for inflation.
REFORMING THE CHILD TAX CREDIT
5
Distribution of Benefits for Selected CTC Reform
Proposals
Policymakers interested in reforming the CTC can adjust various CTC program rules to affect different
groups of people. Alternative policies can concentrate benefits on different income quintiles (figure 4)
and the share of people in different income categories who would benefit (figure 5). The following
analysis separates possible reforms into three categories: (1) those that would deliver almost all
additional benefits to families with children in the bottom two income quintiles (which would prevent
the scheduled cuts to their benefits); (2) those that would focus additional benefits on middle-income
families; and (3) those for which almost all added benefits would go to the top two income quintiles.
FIGURE 4
Proportion of Child Tax Credit Increase Delivered to Each Quintile under Various Reform Proposals,
2018
Q1
Q2
Q3
Q4
Q5
Option 1. Make current $3,000 refundability threshold
permanent
Option 2. Double the maximum credit to $2,000 per
child
Option 2A. Provide an additional $1,500 credit to
workers with young children
Option 2B. Increase the child age limit from under 17 to
under 19
Option 3. Index all credit parameters
Option 4. Increase the phaseout threshold for married
couples
Option 5. Create $2,500 add-on credit with limited
refundability and no phaseout
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Source: Urban-Brookings Tax Policy Center, “Microsimulation Model, version 0515-1,”
http://taxpolicycenter.org/numbers/displayatab.cfm?template=simulation&SimID=509.
Note: Q = quintile. Quintile 1 is the lowest income quintile, quintile 5 the highest.
6
REFORMING THE CHILD TAX CREDIT
FIGURE 5
Share of Families Whose Child Tax Credit Would Increase under Various Reform Proposals
Income Quintile
Option 1. Make current
$3,000 refundability
threshold permanent
Option 2. Double the maximum
credit to $2,000 per child
Option 2A. Provide an
additional $1,500 credit to
workers with young children
Option 2B. Increase the child
age limit from under 17 to
under 19
Option 3. Index all credit
parameters
Option 4. Increase the
phaseout threshold for married
couples
Option 5. Create $2,500 addon credit with limited
refundability and no phaseout
Q1
Q2
Q3
Q4
Q5
Q1
Q2
Q3
Q4
Q5
Q1
Q2
Q3
Q4
Q5
Q1
Q2
Q3
Q4
Q5
Q1
Q2
Q3
Q4
Q5
Q1
Q2
Q3
Q4
Q5
Q1
Q2
Q3
Q4
Q5
0%
20%
40%
60%
80%
100%
Source: Urban-Brookings Tax Policy Center, “Microsimulation Model, version 0515-1,”
http://taxpolicycenter.org/numbers/displayatab.cfm?template=simulation&SimID=509.
Note: Q = quintile. Quintile 1 is the lowest income quintile, quintile 5 is the highest.
REFORMING THE CHILD TAX CREDIT
7
Reforms Focused on Low-Income Families
Many low-income families can only claim the refundable part of the CTC because they owe no tax.
Expanding the CTC for poor families thus requires expanding the refundable (or additional) CTC. With
the CTC’s current refundability threshold of $3,000, families who owe too little tax can receive a credit
of 15 cents for every dollar earned above $3,000, up to $1,000 per qualifying child.
OPTION 1. MAKE CURRENT $3,000 REFUNDABILITY THRESHOLD PERMANENT
Making the $3,000 refundability threshold permanent in 2018 would increase the CTC for almost 70
percent of families with children in the lowest income quintile and one-quarter of families with children
in the second income quintile, compared with current law (figure 4). Nearly three-quarters of the total
increased credit would go to families with children in the lowest income quintile, and almost all of the
remaining increase would go to those in the second quintile (figure 5). This proposal would make the
CTC more progressive in 2018 than it would be under current law, but consistent with benefits in 2016.
OPTION 1A. REDUCE REFUNDABILITY THRESHOLD TO $0
Reducing the refundability threshold for the CTC so that the credit phases in from the first dollar of
earnings would make credit calculation more consistent with the EITC and most other tax credits (not
shown in figures). The change would target additional CTC benefits on very low income families: Just
over three-quarters of families with children in the lowest income quintile and about a quarter of those
in the second quintile would receive larger credits in 2018 than under current law. Nearly all benefits
from this change would again flow to families with children in the lowest income quintile, and almost all
remaining benefits would go to families with children in the second income quintile.3 This proposal is
slightly more generous than the treatment of low-income families in 2016.
Reforms Focused on Middle-Income Families
Increasing the maximum amount of the credit, either directly or by indexing it for inflation, would
increase its value for people who already receive the full CTC under current law. Low-income families
who earn too little to claim the maximum credit would not benefit from such a change. Their credit
would still be constrained by the amount available as a refund. Some high-income families would see
only limited benefit from a larger credit because the phaseout would take away some or all of the
increase.
Variations on this reform that would cost less than a broad-based expansion include providing a
larger CTC to families with young children (as discussed recently in West, Boteach, and Vallas 2015)
and providing the CTC for currently ineligible children—such those between ages 17 and 19.4 Providing
the CTC to currently ineligible families would likely provide a distribution of benefits similar to the
current one, so long as their incomes were distributed similarly.
OPTION 2. DOUBLE THE MAXIMUM CREDIT TO $2,000 PER CHILD
TPC estimates that doubling the maximum credit would increase CTCs for 56 percent of all families
with children in 2018 (only slightly less than the 58 percent of families that will receive the CTC in 2018
8
REFORMING THE CHILD TAX CREDIT
under current law). Large majorities of families with children in the second, third, and fourth quintiles
would see their credits rise. Just over one-fifth of families with children in the highest income quintile
would receive a larger credit (under current law, only 4 percent of families with children in the highest
income quintile will receive the CTC in 2018). Of families in the lowest income quintile, 17 percent
would qualify for a larger credit. That said, only about 3 percent of all the new benefits would go to
families in the lowest income quintile.
OPTION 2A. PROVIDE AN ADDITIONAL $1,500 CREDIT TO WORKERS WITH YOUNG CHILDREN
A steady stream of research shows that the early years are critical in determining later life outcomes.
Even relatively small boosts in income can lead to better later-life outcomes.5 Bolstered by this
research, advocates have proposed providing an additional $1,500 credit to families with children
under age 3. TPC estimates that almost 90 percent of added benefits would go to families in the middle
three income quintiles in 2018. The higher earnings threshold for the refundable credit in that year
would keep low-income families from getting much benefit from the additional credit—TPC estimates
that only 11 percent of families with children in the lowest income quintile would gain. About 20
percent of families with children in the second, third, and fourth quintiles and less than 2 percent of
those in the highest income quintile would get larger credits under the proposal.
To provide more benefits to low-income families, West, Boteach, and Vallas (2015) proposed
making the new young child tax credit fully refundable. A more modest adjustment would extend the
temporary $3,000 refundability threshold. TPC estimates that with that modification, about 45 percent
of new benefits from the new young child tax credit would go to families in the lowest income quintile.
Another quarter would go to families in the second income quintile. Credits would increase for threequarters of families with children in the lowest income quintile and for about 40 percent of those in the
second income quintile (revenue estimate shown as option 2A alternative in table 1).
OPTION 2B. INCREASE THE CHILD ELIGIBILITY AGE LIMIT FROM UNDER 17 TO UNDER 19
Children must be under age 17 to qualify for the CTC, a lower age limit than for the EITC and the
dependent exemption, the two other most broadly available child-related tax benefits. Raising the CTC
age limit to 19 would increase the credit for families with older children who generally still live at home;
it could also be a step toward a uniform definition of child in the federal tax code (Maag 2011).
REFORMING THE CHILD TAX CREDIT
9
TABLE 1
Total Estimated Costs of Options for Reforming the Child Tax Credit, 2016–2025
Billions ($)
Calendar Yeara
Baseline benefits
Option 1. Permanent $3,000 refundability threshold
Option 1 (alternative). Reduce refundability threshold to $0
Option 2. Double the maximum credit from $1,000 to $2,000
per child
Option 2A. Extra $1,500 credit for children <3, current law
other rulesb
Option 2A (alternative). Extra $1,500 credit for children <3, plus
option 1
Option 2B. Increase eligibility age from under 17 to under 19
c
2016
2017
2018
2019
2023
2024
56.7
56.2
49.8
49.8
49.7
0.0
0.0
-10.2
-10.2 -10.2
-10.2
49.4
49.3
49.0
48.6
508.4
-10.0
-10.0
-9.9
-9.8
-80.5
-2.1
-2.0
-12.1
-12.0 -11.9
-11.8
-11.5
-11.4
-11.2
-11.0
-97.0
-48.7
-49.1
-43.8
-44.5 -44.8
-45.2
-45.6
-45.9
-46.1
-46.1
-459.7
-15.8
-15.7
-12.3
-12.3 -12.3
-12.2
-12.1
-12.0
-11.7
-11.5
-127.7
-15.8
-15.7
-25.9
-7.3
-7.3
-5.6
-25.9 -25.8
-5.6
-5.5
-25.7
-25.4
-25.2
-24.8
-24.5
-234.7
-5.5
-5.5
-5.4
-5.3
-5.2
-58.2
-7.9
-9.9
-11.4
-13.5
-15.5
-72.7
49.9
2020
2021
2022
2025 2016–2025
Option 3. Index all CTC parameters
Option 4. Increase married phaseout threshold to twice single
thresholdd
0.0
-1.5
-2.6
-4.5
-5.9
-4.6
-4.9
-5.0
-5.2
-5.3
-5.3
-5.4
-5.4
-5.4
-5.5
-52.1
Options 3 and 4 combined
-4.6
-6.3
-7.6
-9.6 -11.1
-13.1
-15.3
-16.8
-19.0
-21.3
-124.8
Option 5. Additional $2,500 CTC, limited refundabilitye
-108.9 -111.1 -115.1 -117.0 -118.7 -120.4 -122.7 -124.6 -126.1 -128.1 -1,192.7
Source: Urban-Brookings Tax Policy Center, “Microsimulation Model, version 0515-1.”
a
Calendar years. Baseline is current law. Effective January 1, 2016.
b
Create new $1,500 young child tax credit for children under three years old. The young child tax credit is calculated separately from the child tax credit, using the same rules as
specified for the child tax credit under the proposal.
c
Index credit amount and earnings thresholds for inflation.
d
Child tax credit phaseout for married couples at $150,000 instead of $110,000 and for married couples filing separately at $75,000 instead of $55,000.
e
Additional $2,500 child tax credit with refundability limited to the sum of total income and payroll tax liabilities, including employer-side payroll tax liability. The credit does not
phase out.
10
REFORMING THE CHILD TAX CREDIT
Increasing the CTC age limit to 19 would raise credits mostly for families with children in the middle
of the income distribution. Less than 5 percent of new benefits would go to a few families in the lowest
income quintile, and almost none would go to families in the highest income quintile. Nearly 13 percent
of families in the second quintile would see their CTC rise in 2018 (relative to current law); these
families would get just over one-quarter of additional benefits. About 16 percent of families in the third
and fourth quintiles would see benefits rise. More low-income families would benefit from increasing
the age limits than from providing extra credits to very young children because families with only older
children could then claim the CTC, while the many families whose CTC is already capped would gain
nothing. More very low-income families would benefit before 2018, when the CTC will no longer be
available to very low-income families.
OPTION 3. INDEX ALL CREDIT PARAMETERS
Unlike many parts of the tax code the maximum value of the child credit is not indexed for inflation, so
rising prices erode its real value over time. Indexing the maximum credit would allow the maximum
benefit to keep up with inflation and would benefit anyone with enough income to qualify for the full
credit. Indexing the income levels at which the credit phases in and phases out would mean that
relatively the same group of people would receive the credit year over year. Without indexation, some
higher-income families become ineligible for the credit because their earnings rise with inflation; some
low-income families could claim larger credits as inflation raises their earnings above the unindexed
phase-in threshold. If the credit phase-in were indexed, a family whose wages failed to keep pace with
inflation would qualify for a smaller credit every year.
Almost half of all benefits from indexing the credit would go to families with children in the fourth
income quintile, and another quarter would go to those in the middle quintile. Few benefits would go to
lower-income or high-income families. Almost two-thirds of families with children in the second income
quintile and even larger majorities in the third and fourth income quintiles would see their credit rise.
Reforms Focused on High-Income Families
To provide additional benefits to high-income families with children, policymakers could increase the
point at which the credit begins to phase out or even remove the phaseout entirely. This approach
would benefit only families with children in the third income quintile and higher. As an alternative,
Senators Lee and Rubio proposed an additional $2,500 child credit with limited refundability, with most
of the benefits going to higher-income families.6
OPTION 4. INCREASE THE PHASEOUT THRESHOLD FOR MARRIED COUPLES
Under current law, the credit is reduced by 5 cents for every dollar of adjusted gross income over
$75,000 ($110,000 if married). TPC estimates that the phaseout will reduce or eliminate the credit for
15.3 million children in 2016. Lowering the phaseout threshold would reduce benefits for higherincome families with children. Conversely, raising the threshold would allow more families to get the
credit and increase benefits going to families whose credits are limited under current law.
REFORMING THE CHILD TAX CREDIT
11
If the phaseout threshold for married couples were raised to twice that for single parents, almost 60
percent of increased benefits would go to families with children in the fourth income quintile and almost
all of the rest would go to families in the top quintile. About a third of families with children in the fourth
income quintile and about a quarter of those in the top quintile would receive larger credits under a plan
to index the phaseout threshold for married couples. Single parents would see no change from this
proposal.
If this change were coupled with indexing the credit, about half of all benefits from the reform
would go to families with children in the fourth income quintile and over a third would go to those in the
top quintile.
OPTION 5. CREATE A $2,500 ADD-ON CREDIT WITH LIMITED REFUNDABILITY AND NO
PHASEOUT
Providing an additional CTC of up to $2,500 for children under 17 with no phaseout for high-income
families and only partial refundability would expand benefits much more than the options discussed
above. Because of its limited refundability, most low-income families could not get the new credit.
About 30 percent of the proposal’s benefits would go to families with children in the middle income
quintile, about 30 percent to those in the fourth quintile, and almost one quarter to those in the top
quintile. Large majorities of families with children in the highest three income quintiles would benefit
from this proposal.
Average Benefits and Total Costs of Sample CTC Reform
Proposals
Both the cost of benefits and the average amount going to families in different parts of the income
distribution vary widely across options to expand the child credit (figure 6, table 1, table 2). Ten-year
revenue costs range from about $52 billion (for setting the phaseout threshold for married couples to
double that for single parents) to nearly $1.2 trillion (for providing a new $2,500 credit with limited
refundability and no phaseout; table 2). The characteristics of each proposal determine which families
would benefit most from a given change.
The range of options presented has a 10-year budget cost of between $52 billion (increasing the
phaseout threshold for married couples, option 4) and $1,192 billion (adding an additional $2,500 credit
with limited refundability, option 5). All five plans would expand the current CTC, although some would
provide lower benefits in 2018 than would extending the $3,000 reduced refundability threshold
(figure 6 and table 1). Any plan could be scaled up or down to meet a certain budget target, which would
alter the average benefits to each income quintile, but not necessarily their distribution.
12
REFORMING THE CHILD TAX CREDIT
TABLE 2
Average Child Tax Credit Benefits by Income Quintile, 2018
Dollars
Quintile
1
Current law ($14,600 refundability threshold)
Option 1. Make current $3,000 refundability threshold permanent
Option 2. Double the maximum credit to $2,000 per child
Option 2A. Provide an additional $1,500 credit to workers with young childrena
Option 2B. Increase the child age limit from under 17 to under 19
Option 3. Index all credit parameters
b
Quintile
2
Quintile
3
Quintile
4
Quintile
5
All
369
1,299
1,484
905
24
829
1,048
1,501
1,502
906
24
187
478
2,273
2,936
2,197
256
815
1,149
1,835
1,887
1,249
75
432
391
1,433
1,672
1,069
32
104
373
1,341
1,547
1,027
39
49
Option 4. Increase the phaseout threshold for married couplesc
369
1,299
1,490
1,215
241
102
Option 5. Create $2,500 add-on credit with limited refundability and no phaseoutd
572
2,852
4,851
4,277
2,903
2,241
Source: Urban-Brookings Tax Policy Center, “Microsimulation Model, version 0515-1.”
a
Create new $1,500 young child tax credit for children under three years old. The young child tax credit is calculated separately from the child tax credit, using the same rules as
specified for the child tax credit under the proposal.
b
Index credit amount and earnings thresholds for inflation.
c
Child tax credit phaseout for married couples at $150,000 instead of $110,000 and for married couples filing separately at $75,000 instead of $55,000.
d
Additional $2,500 child tax credit with refundability limited to the sum of total income and payroll tax liabilities, including employer-side payroll tax liability. The credit does not
phase out.
REFORMING THE CHILD TAX CREDIT
13
FIGURE 6
10-Year Budget Cost of Various Reform Proposals to Child Tax Credit (2016–2025)
Billions ($)
Option 1. Make current $3,000 refundability
threshold permanent
81
Option 2. Double the maximum credit to $2,000 per child
460
Option 2A. Provide an additional $1,500 credit to workers with
young children
128
Option 2B. Increase eligibility age from under 17 to under 19
58
Option 3. Index all credit parameters
73
Option 4. Increase the phaseout thershold for married couples
52
Option 5. Create $2,500 add-on credit with limited
refundability and no phaseout
1193
Source: Urban-Brookings Tax Policy Center, “Microsimulation Model, version 0515-1,”
http://taxpolicycenter.org/numbers/displayatab.cfm?template=simulation&SimID=509.
14
REFORMING THE CHILD TAX CREDIT
For families with children in the lowest income quintile, average CTC benefits under current law are
projected to be about $370 in 2018. If the $3,000 refundability threshold were extended, the average
credit for this group would be almost $1,050—a difference of nearly $700. The only reform explored
here that would deliver a larger average benefit to the entire CTC recipient population would be a
further reduction in the refundability threshold (which would have the added benefit of simplifying the
credit’s calculation). To extend the refundability threshold would cost about $80 billion over the
current budget window; reducing it so that the CTC starts phasing in with the first dollar of earnings
would cost about $97 billion.
Over the 10-year budget window, extending the reduced refundability threshold costs about the
same as a plan to index all CTC credit parameters ($81 billion versus $73 billion). However, benefits
would be distributed quite differently with the two plans. Families with children in the lowest income
quintile would see an average credit increase of less than $5 if the credit were indexed—much smaller
than the almost $700 boost they would receive under a proposal to extend the $3,000 refundability
threshold, maintaining benefits akin to those received before 2018. In contrast, families in the fourth
income quintile would see their average credit rise by over $100 if the CTC were indexed but see
almost no change from a proposal to extend the $3,000 refundability threshold.
Coupling a $1,500 credit boost for families with children under age 3 (calculated separately from
the CTC—a young child tax credit) with an extension of the reduced refundability threshold would
deliver average benefits of $1,385 (an average increase of $1,016) to families in the lowest income
quintile (table 2). The proposal would cost about $235 billion over the budget window from 2016 to
2025, about three times what it would cost to maintain the current $3,000 refundability threshold after
2017.
A more modest implementation of the young child tax credit, one that does not include extending
the $3,000 refundability threshold, would cost about $128 billion over the budget window—quite
similar to the $125 billion cost associated with combining options 3 and 4, as in Representative
Jenkins’s proposal. Though similar in total budget impact, the policies would have very different effects
on average credits for families in various income groups. Even without extending the reduced
refundability threshold, the young child tax credit would lift benefits to families in the second income
quintile about $350; in the third income quintile, average credits would increase by about $400. The
Jenkins proposal would have the largest impact on average credits for families with children in the top
three income quintiles.
Conclusion
The CTC delivers substantial benefits to families with children. Analysts and policymakers have
proposed a wide variety of reforms to either expand the number of families getting the credit or raise
the amount of the credits they get. The design of specific reforms can radically affect who benefits and
how much their credits would increase. Simple reforms involve changing one or more of the credit’s
parameters—the point at which the credit begins to phase in, the amount of the credit, or how the credit
REFORMING THE CHILD TAX CREDIT
15
phases out. More complicated changes would alter more than one lever, and the interactions between
the changes would dictate how benefits would be distributed. For example, coupling many of the
discussed changes with an extension of the $3,000 refundability threshold would direct more benefits
to lower-income families than could be done with the higher refundability threshold in place.
For reformers interested in increasing or even maintaining CTC benefits for families with children
in the lowest income quintile, maintaining the temporarily reduced refundability threshold is essential.
Lowering the threshold even more would also focus additional benefits on families with children in the
lowest income quintile while giving little or no additional benefits to families in the highest quintile.
Middle-income families would benefit most from reforms that index the CTC, broaden the eligible
population, or increase the credit maximum. Any of these reforms could be coupled with an extension of
the $3,000 refundability threshold if the goal is to deliver larger benefits to low- and middle-income
families with children.
Finally, eliminating the credit’s phaseout or adding a new credit that doesn’t phase out would
deliver benefits to higher income families.
Notes
1.
For ease of exposition, further reference to the child tax credit includes both the refundable and
nonrefundable portions.
2.
Income quintiles are based on the income distribution for the entire population and contain an equal number
of people, not tax units. The incomes used are adjusted for family size by dividing by the square root of the
number of people in the tax unit. The resulting percentile breaks are (in 2015 dollars)








20 percent, $16,353;
40 percent, $30,531;
60 percent, $52,710;
80 percent, $87,501;
90 percent, $126,779;
95 percent, $176,431;
99 percent, $425,759; and
99.9 percent, $2,261,596.
3.
An even more generous option (not shown) would allow all children, regardless of whether their parents had
earnings (so long as the earnings were not high enough to be in or beyond the credit’s phaseout range), to
receive the full CTC. This option would require even people who do not work to file income tax returns in order
to benefit. It was discussed in the recent proposal by the Center for American Progress to provide higher CTC
benefits to low-income families with young children (West, Boteach, and Vallas 2015), as well as in Goldberg,
Batchelder, and Orszag (2006).
4.
As discussed in Maag (2013) and Committee for a Responsible Federal Budget, “The Tax Break-Down: Child
Tax Credit,” Committee for a Responsible Federal Budget, August 29, 2013, http://crfb.org/blogs/tax-breakdown-child-tax-credit.
5.
Center on Budget and Policy Priorities, “Policy Basics: The Child Tax Credit,” Center on Budget and Policy
Priorities, updated December 4, 2014, http://www.cbpp.org/research/policy-basics-the-child-tax-credit.
6.
The full proposal put forth by Senators Lee and Rubio was analyzed in Burman et al. (2014).
16
REFORMING THE CHILD TAX CREDIT
References
Burman, Len, Elaine Maag, Georgia Ivsin, and Jeff Rohaly. 2014. “Preliminary Analysis of the Family Fairness and
Opportunity Tax Reform Act.” Washington, DC: Urban-Brookings Tax Policy Center.
http://www.taxpolicycenter.org//UploadedPDF/413046-Family-Fairness-and-Opportunity-Tax-ReformAct.pdf.
Goldberg, Fred, Lily Batchelder, and Peter Orszag. 2006. “Reforming Tax Incentives into Uniform Refundable Tax
Credits.” Brookings Policy Brief 156. Washington, DC: Brookings Institution.
http://www.brookings.edu/research/papers/2006/08/taxes-orszag.
Maag, Elaine. 2011. “Tax Simplification: Clarifying Work, Child, and Education Incentives.” Tax Analysts, March 28,
1587–96. http://www.urban.org/research/publication/tax-simplification-clarifying-work-child-andeducation-incentives.
———. 2013. “Child-Related Benefits in the Federal Income Tax.” Low-Income Working Families Brief 27.
Washington, DC: Urban Institute. http://www.taxpolicycenter.org//UploadedPDF/413003-Child-RelatedBeneifts-in-the-Federal-Income-Tax.pdf.
West, Rachel, Melissa Boteach, and Rebecca Vallas. 2015. “Harnessing the Child Tax Credit as a Tool to Invest in
the Next Generation.” Washington, DC: Center for American Progress. https://cdn.americanprogress.org/wpcontent/uploads/2015/08/11114756/ChildAllowance-report.pdf.
About the Author
Elaine Maag is a senior research associate in the Urban-Brookings Tax Policy Center at
the Urban Institute, where she studies income support programs for low-income
families and children. Before joining Urban, Maag worked at the Internal Revenue
Service and Government Accountability Office as a Presidential Management Fellow.
She has advised congressional staff on the taxation of families with children, higher
education incentives in the tax code, and work incentives in the tax code. Maag
codirected the creation of the Net Income Change Calculator, a tool that allows users
to understand the trade-offs between tax and transfer benefits, and changes in
earnings or marital status. Maag holds an MS in public policy analysis from the
University of Rochester.
REFORMING THE CHILD TAX CREDIT
17
Acknowledgments
This brief was funded by the Annie E. Casey Foundation through the Urban Institute’s Low-Income
Working Families Project, a multiyear effort that focuses on the private- and public-sector contexts for
families’ well-being. We are grateful to them and to all our funders, who make it possible for Urban to
advance its mission.
The views expressed are those of the author and should not be attributed to the Urban Institute, its
trustees, or its funders. Funders do not determine our research findings or the insights and
recommendations of our experts. Further information on the Urban Institute’s funding principles is
available at www.urban.org/support.
Thanks to Hang Nguyen and Elena Ramirez for all model estimates contained in this paper, and to Lydia
Austin for creating the figures. The paper was reviewed and improved in various stages by Leonard
Burman, Margaret Simms, C. Eugene Steuerle, and Roberton Williams. All errors that remain are the
author’s.
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REFORMING THE CHILD TAX CREDIT